Buisness Management Answers over 100 Questions

8/10/2019 Buisness Management Answers over 100 Questions

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Business Essentials, 9e(Ebert/Griffin)

Chapter 15 Money and Banking

1) Any object can serve as money if it is portable, divisible, durable, and stable.Answer: TRUE

Eplanation: T!ese c!aracteristics ma"e money able to be used for trade instead of barterin#wit! actual #oods.$a#e Ref: %&&'ifficulty: Easy(bjective: 1.1*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

-) T!e /- money supply includes everyt!in# t!at is in t!e /1 money supply.Answer: TRUE

Eplanation: T!e /- definition of money is broader t!an t!e /1 definition.$a#e Ref: %0'ifficulty: Easy(bjective: 1.1*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

%) 2n mutual savin#s ban"s, all depositors are considered owners of t!e ban".Answer: TRUEEplanation: All profits are divided proportionately amon# depositors, w!o receive dividends.

$a#e Ref: %0-'ifficulty: Easy(bjective: 1.-*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

3) A ban"er4s acceptance re5uires payment by a specified date.Answer: TRUEEplanation: 6an"s can draw up a ban"er4s acceptance, w!ic! promises t!at t!e ban" will paysome specified amount at a future date.$a#e Ref: %0%'ifficulty: Easy(bjective: 1.-*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

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) T!rou#! t!e 9ederal 'eposit 2nsurance orporation, a deposit in a member ban" is currentlyinsured up to ,.Answer: 9A*+EEplanation: T!ey are actually insured up to -,.$a#e Ref: %0;

'ifficulty: Easy(bjective: 1.%*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

;) As t!e #overnment4s ban", t!e 9ed produces t!e nation4s paper currency and lends money tot!e #overnment.Answer: TRUEEplanation: 2t also lends money to t!e #overnment by buyin# bonds issued by t!e Treasury'epartment to !elp finance t!e national deficit.

$a#e Ref: %0&'ifficulty: Easy(bjective: 1.3*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept


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0) T!e reason w!y a savin#s account is not considered a component of t!e /1 money supply ist!at it bears interest.Answer: 9A*+EEplanation: 2t is not considered as a component because /1 includes only t!e most li5uidforms of money?cas!, c!ec"s, and c!ec"in# accounts.

$a#e Ref: %&0'ifficulty: oderate(bjective: 1.1*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

1) T!e prime rate of a particular ban" is t!e avera#e interest rate of t!e commercial loanscurrently bein# paid by borrowers from t!at ban".Answer: 9A*+EEplanation: T!e prime rate is set by t!e respective states in w!ic! t!e ban"s do business.

$a#e Ref: %0-'ifficulty: oderate(bjective: 1.-*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

11) 2n order to save money on transactional costs, t!e U.+. Treasury is movin# to electronic fundtransfers for payments rat!er t!an issuin# c!ec"s.Answer: TRUEEplanation: T!e U.+. Treasury reports t!at it costs 1.% to issue a c!ec" payment, but only.1 to issue an E9T payment.$a#e Ref: %03'ifficulty: oderate(bjective: 1.-*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

1-) +avin#s and loan associations be#an primarily to loan money to small to medium/si=edbusinesses.Answer: 9A*+EEplanation: Traditionally, +@*s loaned money primarily for !ome mort#a#es> many !ave nowventured into ot!er areas of investments.$a#e Ref: %0-'ifficulty: oderate(bjective: 1.-*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

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1%) 2ndividual retirement accounts can be opened only by self/employed people suc! as doctors,small business owners, and consultants.Answer: 9A*+EEplanation: 2ndividual retirement accounts are ta/deferred pension funds t!at any wa#eearners and t!eir spouses can set up to supplement t!eir retirement income.

$a#e Ref: %0%'ifficulty: oderate(bjective: 1.-*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

13) 6an"s create money t!rou#! contracts wit! t!e #overnment to mint bills and coins.Answer: 9A*+EEplanation: 6an"s create money by ta"in# in deposits and ma"in# loans.$a#e Ref: %0

'ifficulty: oderate(bjective: 1.%*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

1) (ne of t!e daily responsibilities of t!e 9ederal Reserve +ystem is to re#ulate t!e currentfederal funds rate.Answer: 9A*+EEplanation: T!e 9ederal Reserve +ystem !as no direct control over t!e interest rate c!ar#edbetween ban"s in lendin# reserves to eac! ot!er.$a#e Ref: %00'ifficulty: oderate(bjective: 1.3*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

1;) (pen/mar"et operations is often a more effective met!od for t!e 9ederal Reserve +ystem toepand t!e money supply t!an is mintin# more dollars and coins.Answer: TRUEEplanation: 6uyin# securities from ban"s is 5uic"er and easier t!an mintin# money?and t!eban"s involved !ave immediately available cas! for lendin#.$a#e Ref: %00'ifficulty: oderate(bjective: 1.3*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

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-1) T!e 9ederal Reserve +ystem !as been instrumental in providin# interban" clearin# ofelectronic payments for t!e nation4s financial institutions.Answer: 9A*+EEplanation: T!is is actually re#ulated by BA8A, an independent association.$a#e Ref: 31

'ifficulty: oderate(bjective: 1.*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

--) +ince late -&, investors of certain ban"s !ave been prevented from !avin# completecontrol over t!e sale of t!eir ban"s4 stoc"s.Answer: TRUEEplanation: T!e Troubled Asset Recovery $ro#ram !as #iven t!e U.+. Treasury si#nificantcontrol over w!ic! stoc"s of t!e bailed/out ban"s can be sold and to w!om.$a#e Ref: 3'ifficulty: oderate(bjective: 1.*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

-%) T!e international payments process t!at moves money between buyers and sellers ondifferent continents is subject to worldwide policy systems.Answer: 9A*+EEplanation: T!e international payments process t!at moves money between buyers and sellerson different continents is not subject to any worldwide policy system beyond loosely structureda#reements amon# countries.$a#e Ref: 3;'ifficulty: oderate(bjective: 1.;*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

-3) 2n international payments, e5ual money inflows and outflows can result in no money bein#transferred between countries.Answer: TRUE

Eplanation: 2f trade between any two countries is in balance, money does not flow between t!etwo countries.$a#e Ref: 3;'ifficulty: oderate(bjective: 1.;*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

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-) T!e one area t!at t!e 9ederal Reserve +ystem !as very little control over is t!e stren#t! oft!e U.+. dollar a#ainst ot!er currencies.Answer: 9A*+EEplanation: 9ederal interest rate policies contribute to t!e stren#t! of t!e U.+. dollar.

$a#e Ref: 33'ifficulty: oderate(bjective: 1.;*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

-;) T!e 2nternational onetary 9und see"s to promote stable ec!an#e rates.Answer: TRUEEplanation: T!e 29 is a UB a#ency made up of 1 countries t!at promote ec!an#e ratestability, provide s!ort/term loans to member countries, build cooperation on monetary issues,and develop a system of international payments.$a#e Ref: 3'ifficulty: oderate(bjective: 1.;*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

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-0) T!e 9ederal 'eposit 2nsurance orporation is t!e #overnment a#ency t!at re#ulatesAmerican ban"s.Answer: TRUEEplanation: Up to 00 percent of American ban"s are re#ulated t!rou#! t!e 9'2. +ome states

re#ulate t!eir local ban"s.$a#e Ref: %0;'ifficulty: oderate(bjective: 1.%*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

%) A sin#le dollar deposited into a commercial ban" !as t!e potential of creatin# up to %. int!e overall money supply.Answer: TRUEEplanation: T!e interest created by loans increases t!e money supply.$a#e Ref: %0'ifficulty: oderate(bjective: 1.%*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

%1) T!e increased activity of t!e financial mar"et in t!e past five years !as resulted in a severedrop in t!e re5uired premiums for commercial ban"s to be members of t!e 9ederal 'eposit2nsurance orporation.Answer: 9A*+EEplanation: 2n recent years, t!e 9'2 !as raised t!e premiums c!ar#ed to member ban"s to"eep up wit! losses incurred by failed ban"s.$a#e Ref: %0;'ifficulty: oderate(bjective: 1.%*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

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%-) At any #iven time, t!ere may be up to 1 different discount rates set by t!e 9ederal Reserve+ystem for loanin# money to commercial ban"s.Answer: 9A*+EEplanation: T!e 9ederal Reserve consists of 1- ban"in# districts. +o t!ere would be at most 1-different discount rates.

$a#e Ref: %00'ifficulty: oderateAA+6: Analytic s"ills(bjective: 1.3*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

%%) An overly lar#e decrease in t!e reserve re5uirement by t!e 9ederal Reserve +ystem couldresult in inflation.Answer: 9A*+E

Eplanation: A decrease in t!e reserve re5uirement reduces t!e amount of deposits t!at eac!ban" !as to "eep on !and> t!erefore, a decrease in t!e reserve re5uirement increases moneysupply. 6ut if t!e re5uirement is too low, t!ere may end up bein# a lar#er money supply t!andemand for #oods, leadin# to deflation.$a#e Ref: %0&'ifficulty: oderate(bjective: 1.3*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

%3) C!ic! of t!e followin# !as a fied termDA) demand deposits6) time deposits) money mar"et mutual funds') credit card accountsE) savin#s accountsAnswer: 6Eplanation: 6) Time deposits are intended to be !eld until maturity.$a#e Ref: %0'ifficulty: Easy(bjective: 1.1*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!e

monetary system+"ill: oncept

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%) C!ic! of t!e followin# financial institutions is considered a t!rift institutionDA) pension fund6) credit union) commercial ban"') savin#s and loan association

E) securities investment firmsAnswer: 6Eplanation: 6) redit unions formed to !elp certain #roups of people mana#e t!eir money wit!more t!rift.$a#e Ref: %0-'ifficulty: Easy(bjective: 1.-*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: Application

%;) T!e Borton ounty 6an" performs suc! tas"s as ma"in# mont!ly bill payments, mana#in#investment portfolios, and mana#in# t!e estates of deceased persons. C!at are suc! servicescalledDA) special ban"er4s services6) financial advice services) public services') trust servicesE) amal#amation servicesAnswer: 'Eplanation: ') 9or a fee, a ban"4s trust department will perform all of t!ese functions.$a#e Ref: %0%'ifficulty: Easy(bjective: 1.-*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: Application

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%&) C!ic! of t!e followin# terms refers to t!e percenta#e of its deposits a ban" must !old, incas! or on deposit, wit! a 9ederal Reserve ban"DA) discount rate6) "ey rate

) prime rate') federal insurance premiumE) reserve re5uirementAnswer: EEplanation: E) T!is is controlled by t!e 9ed.$a#e Ref: %0&'ifficulty: Easy(bjective: 1.3*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

%0) C!ic! of t!e followin# terms refers to t!e interest level at w!ic! member ban"s can borrowmoney from t!e 9ederal Reserve +ystemDA) discount rate6) "ey rate) prime rate') federal insurance premiumE) reserve re5uirementAnswer: AEplanation: A) T!is is one of t!e many interest controls t!at t!e 9ed !as at its disposal.$a#e Ref: %00'ifficulty: Easy(bjective: 1.3*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

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3) C!ic! of t!e followin# terms refers to t!e interest level at w!ic! commercial ban"s lendreserves to eac! ot!er, usually overni#!tDA) discount rate6) "ey rate) prime rate

') federal insurance premiumE) reserve re5uirementAnswer: 6Eplanation: 6) T!e 9ed !as no direct control over t!is.$a#e Ref: %00'ifficulty: Easy(bjective: 1.3*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

31) C!ic! of t!e followin# best describes w!at is called t!e open/mar"et operations of t!e9ederal Reserve +ystemDA) t!e development of new financial opportunities for ban"s6) t!e mintin# of new money to disperse into t!e money mar"et) t!e control of interest rates amon# ban"s') t!e maintenance of a well/functionin# lendin# system amon# ban"sE) t!e buyin# and sellin# of securitiesAnswer: EEplanation: E) T!is allows t!e 9ed to ensure an active mar"et.$a#e Ref: %00'ifficulty: Easy(bjective: 1.3*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

3-) C!ic! of t!e followin# indices indicates t!e relative stren#t! of t!e currencies of twocountriesDA) trade rate6) ec!an#e rate) trade balance') relative #ross national productsE) international loan rateAnswer: 6Eplanation: 6) T!is is t!e ratio of one currency a#ainst t!e ot!er.$a#e Ref: 3%'ifficulty: Easy(bjective: 1.;*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

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3%) Toyota, based in Fapan, would li"e to build a new factory and a new retail distribution center.6ot! or eit!er of t!ese may be built in t!e United +tates and in anada. urrently, t!e U.+. dollaris wea" compared to t!e anadian dollar. C!ic! of t!e followin# would be in Toyota4s bestinterestDA) build t!e cars in anada and sell t!em in t!e United +tates

6) build t!e cars in t!e United +tates and sell t!em in anada) build t!e cars in anada and sell t!em in bot! countries') build t!e cars in t!e United +tates and sell t!em in bot! countriesE) build t!e cars in bot! countries and sell t!em in bot! countriesAnswer: 6Eplanation: 6) +ince transportation costs would be ne#li#ible !ere, it would be!oove Toyota tobuild t!e cars w!ere it would be c!eaper to build t!em and to sell t!em w!ere t!ey could #et t!e!i#!er price.$a#e Ref: 33'ifficulty: oderate(bjective: 1.;

*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: Application

33) C!ic! of t!e followin# best describes t!eportabilityc!aracteristic of moneyDA) 2t neit!er dies nor spoils and if it wears out, it can be replaced.6) Units of money can be matc!ed wit! t!e value of #oods.) 2t can be ec!an#ed across national borders.') 2t allows people to measure t!e relative value of #oods and services.E) 2t is li#!t and easy to !andle.Answer: EEplanation: E) oney is easy to carry, w!ic! ma"es it easy to use.$a#e Ref: %&&'ifficulty: oderate(bjective: 1.1*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

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3) C!ic! of t!e followin# is a conse5uence of t!e divisibilityc!aracteristic of moneyDA) Units of money do not epire after a certain time limit.6) Units of money can be accurately matc!ed wit! t!e value of #oods.) Units of money are easily carried.') Units of money !ave relatively stable value.

E) Units of money of different nations are easily converted to ot!er units of money.Answer: 6Eplanation: 6) odern currency is easily divisible into smaller parts, eac! wit! a fied value>one dollar can be ec!an#ed for 1 dimes. T!us, t!e actual value of #oods can be approimatedvery well by units of money.$a#e Ref: %&&'ifficulty: oderate(bjective: 1.1*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

3;) C!ic! of t!e followin# affects t!e value of moneyDA) !ow muc! currency is in circulation6) !ow many units t!e currency can be divided into) !ow portable t!e form of currency is') !ow durable t!e form of currency isE) !ow muc! currency !as been savedAnswer: AEplanation: A) 2f t!ere is too muc! money in circulation, we end up wit! inflation. 2f t!ere istoo little, everyone starves.$a#e Ref: %&0'ifficulty: oderate(bjective: 1.1*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

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3&) C!ic! of t!e followin# best describes t!estabilityc!aracteristic of moneyDA) Units of money do not epire after a certain time limit.6) Units of money of different nations are easily converted to ot!er units of money.) Units of money can be matc!ed wit! t!e value of #oods.

') Units of money allow people to measure t!e relative value of #oods and services.E) Units of money !ave relatively constant value.Answer: EEplanation: E) T!e value of currency fluctuates a little, t!ou#! its value is related to w!at wecan buy wit! it.$a#e Ref: %&&'ifficulty: oderate(bjective: 1.1*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

30) oney frees society from a system of barter. 2n doin# so, money is performin# w!ic! of t!efollowin# functionsDA) store of value6) measure of wort!) unit of account') determination factorE) medium of ec!an#eAnswer: EEplanation: E) Ce use money as a way of buyin# and sellin# t!in#s> wit!out money, we wouldall be involved in a system of barter.$a#e Ref: %&0'ifficulty: oderate(bjective: 1.1*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

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) C!ic! of t!e followin# is B(T part of t!e /1 supplyDA) currency at !and6) currency amount of written c!ec"s) currency available t!rou#! a debit card') currency in c!ec"in# accounts

E) currency value of time depositsAnswer: EEplanation: E) /1 includes only t!e most li5uid forms of money: cas!, c!ec"s, and c!ec"in#accounts.$a#e Ref: %&0'ifficulty: oderate(bjective: 1.1*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

1) C!ic! of t!e followin# is B(T part of t!e /- money supplyDA) debit card account6) time deposits) money mar"et mutual funds') savin#s accountE) credit card accountAnswer: EEplanation: E) T!e major components of /- are /1, time deposits, money mar"et mutualfunds, and savin#s accounts.$a#e Ref: %0'ifficulty: oderate(bjective: 1.1*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

-) C!ic! of t!e followin# financial institutions earn profits from loans ta"en from t!e funds ineac! of its depositors4 accountsDA) securities investment firms6) pension funds) credit unions') commercial ban"sE) mutual savin#s ban"s

Answer: 'Eplanation: ') T!is is one of t!e primary ways t!at commercial ban"s earn a profit.$a#e Ref: %01'ifficulty: oderate(bjective: 1.-*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

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%) C!ic! of t!e followin# statements is trueDA) +ince insurance companies #enerate t!e vast majority of revenue from investments ofpremium payments, mar"et fluctuations will not affect one4s !ealt! care benefits.6) +ince insurance companies #enerate t!e vast majority of revenue from premium payments,

mar"et fluctuations #enerally do not affect one4s !ealt! insurance premium.) +ince insurance companies also #enerate revenue from investments of premium payments,mar"et fluctuations may affect one4s !ealt! insurance premium.') +ince insurance companies also #enerate revenue from investments of premium payments,mar"et fluctuations may affect one4s !ealt! care benefits.E) +ince insurance companies #enerate revenue from bot! premium payments and investmentst!ereof, mar"et fluctuations will not #enerally affect one4s !ealt! insurance benefits.Answer: Eplanation: ) 2nsurance premiums are set to ma"e a profit, not simply to !ave an epectedbrea"/even value as t!ey were ori#inally meant to do). T!us, if mar"et fluctuations #et tooerratic, premiums mi#!t be set !i#!er to compensate for t!is.

$a#e Ref: %0-'ifficulty: oderateAA+6: Reflective t!in"in# s"ills(bjective: 1.-*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: +ynt!esis

3) C!ic! of t!e followin# financial institutions are considered to be owned by t!eir depositorsDA) commercial ban"s and savin#s and loan associations6) savin#s and loan associations and mutual savin#s ban"s) mutual savin#s ban"s and credit unions') credit unions and pension fundsE) pension funds and savin#s institutionsAnswer: Eplanation: ) T!ese are t!e co/owned institutions. T!e ot!ers are owned by t!e investors.$a#e Ref: %01/%0-'ifficulty: oderate(bjective: 1.-*earnin# (utcome: 'iscuss t!e functions of different types of financial institutions in t!emonetary system+"ill: oncept

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Buisness Management Answers over 100 Questions

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